BIG News

Small Business Growth In Light of Rate Hike

The Federal Reserve raised interest rates again, but this small increase may not faze small business growth. Generally, higher rates translate into more costly traditional loans and, in turn, potentially slow plans for expansion or investment.

However, the recent rate increase of a quarter percentage point — from between 0.25-0.5 percent to between 0.5-0.75 percent — marks only the second hike since rates hovered around nearly zero during the financial crisis.

As Michael Jones, director of content and community development at Bond Street, writes on The Hill, a similar move 12 months ago didn’t stunt small business growth.

The growth of web-based lenders has increased quick access to capital, operating within days versus weeks on loan decisions, and made the marketplace for small business loans more competitive. Small business owners benefit as a result.

Also, the Fed’s move to raise rates reflects a strengthening job market that may drive sales upward and offset the cost of higher credit for businesses. A stronger economic climate and small business endurance also indicates potential for growth despite rate hikes.

According to the Kauffman Index of Main Street Entrepreneurship’s national trends, Main Street entrepreneurship activity is at higher levels in 2016 than those recorded before the onset of the Great Recession. Business survival rates reached a three-decade high of 48.7 percent, meaning nearly half of new businesses reach their fifth year of operation. This shift marks a major turnaround since the Great Recession, when the business survival rate dipped to a low of 42.9 percent in 2011.